Goldman Sachs Priced Knight Unwind at $440 Million

Thomas M. Joyce, chairman and chief executive officer of Knight Capital Group Inc., second from the right, waits to ring the opening bell at the New York Stock Exchange in New York, U.S., on Tuesday, May 25, 2010.

It was Goldman Sachs that helped Knight Trading Groupto unwind its inadvertent purchase of 148 stocks on Wednesday, say people familiar with the matter, and the transaction cost the brokerage firm $440 million – a price tag that has left Knight scrambling for extra cash.

Thanks to a software glitchthat occurred on Wednesday, the Jersey City, N.J. based stock brokerage accidentally bought shares of nearly 150 New York Stock Exchange listed stocks, including some obscure companies like China Cord Blood Corp. and Wizzard Software Corp. Knight was reluctant to sell off those positions on the open market, said the people familiar with the matter, so the firm’s executives waited until after stocks finished their official trading day at 4 p.m. to try to find a partner who would buy them out.

Goldman Sachs agreed to purchase Knight’s unwanted positions as part of one huge basket sale, the people familiar with the matter said, late on Wednesday. But the illiquid nature of some of the stocks and the urgency with which Knight wanted to sell the positions left the bank with plenty of negotiating power, added these people.

Under trade-settlement regulations, the Knight-Goldman block transaction must settle three business days after the initial agreement, which means the seller must come up with the $440 million in cash by late Wednesday. As of June 30, Knight had about $365 million in cash, according to a securities filing – raising important questions about whether the brokerage firm could generate the additional money by early next week.